Ames National Corporation (ATLO): SWOT Analysis [Nov-2025 Updated]

Ames National Corporation (ATLO) is at a critical inflection point in 2025; they've posted a strong year-to-date net income of $12.5 million, showing real success in cost control and net interest income management. But, honestly, that progress is overshadowed by a sharp rise in substandard loans, which hit $29.7 million by Q3 2025, plus they face a geographic concentration risk being solely in Iowa. You need to look past the impressive 13.9% Common Equity Tier 1 (CET1) capital cushion and understand how to defintely manage the commercial real estate exposure while leveraging the conservative 72% loan-to-deposit ratio for sustainable growth.

Ames National Corporation (ATLO) - SWOT Analysis: Strengths

Strong YTD 2025 Net Income of $12.5 Million

You want to see a clear path to profitability, and Ames National Corporation is defintely delivering on that front. The company reported a strong year-to-date (YTD) net income of $12.5 million for the nine months ended September 30, 2025, which is a significant increase from the $6.7 million earned in the same period of 2024. This performance is a direct result of effective interest rate management, specifically a surge in net interest income.

The core driver here is the net interest margin (NIM), which improved to 2.83% in the third quarter of 2025, up from 2.21% a year ago. This means the bank is making a materially better spread between what it earns on loans and what it pays on deposits. The momentum is clear: higher loan yields and reduced borrowing costs are moving the right levers for shareholders.

High Capital Cushion and Well-Capitalized Status

In the banking world, a capital cushion is your safety net-it's what protects depositors and shareholders from unexpected losses. Ames National Corporation maintains a very strong capital position, which is a key strength in a volatile market. As of September 30, 2025, all six of the company's affiliate banks are classified as well-capitalized under federal regulations. While the specific Common Equity Tier 1 (CET1) ratio isn't always public, the overall stockholders' equity represented a robust 9.5% of total assets at the end of Q3 2025. This level of equity provides a substantial buffer against credit or market risk.

Conservative Loan-to-Deposit Ratio, Approximately 69.61%

A conservative loan-to-deposit (L-D) ratio signals liquidity and a lower reliance on wholesale funding, which is exactly what you want to see in a regional bank. Here's the quick math: as of September 30, 2025, the company reported net loans receivable of $1.276 billion against total deposits of $1.833 billion.

This translates to a conservative L-D ratio of approximately 69.61%. This is a solid, below-average ratio for the industry, meaning the bank is not stretched. It holds more in deposits than it has lent out, giving it ample liquidity to meet customer withdrawals, fund new loan demand, or invest in higher-yielding assets. That's a fundamentally sound balance sheet.

Efficiency Ratio Improved to 61.76% in Q3 2025, Reflecting Better Cost Control

The efficiency ratio (non-interest expense as a percentage of net revenue) is how we measure a bank's operational discipline. Ames National Corporation has made serious progress here. The efficiency ratio for the third quarter of 2025 improved significantly to 61.76%, down from 77.87% in the same quarter last year.

This improvement shows they are generating more revenue from every dollar of operating expense. The reduction in noninterest expense-down 2.5% in Q3 2025, mainly due to lower consulting fees-is a clear, actionable strength. Lowering this ratio is a direct boost to the bottom line, and they are executing on it.

Consistent Dividend Payer with an Attractive 3.8% Yield

For income-oriented investors, the consistent dividend is a major strength. Ames National Corporation has a history of paying out to shareholders, and as of November 2025, the forward dividend yield is approximately 3.8%. This yield is attractive, especially when coupled with the company's rising net income, which provides a sustainable coverage ratio for the payout. They declared a quarterly cash dividend of $0.20 per share in November 2025, reinforcing this commitment.

• Provides a steady income stream for investors.
• Quarterly dividend of $0.20 per share declared in November 2025.
• The dividend is supported by a significant increase in YTD net income.

Ames National Corporation (ATLO) - SWOT Analysis: Weaknesses

Substandard loans increased to $29.7 million as of Q3 2025

You need to pay close attention to the quality of the loan book, because a rise in substandard loans (credit classified as weak or having more than normal risk) is a clear red flag for future credit losses. Ames National Corporation's substandard loans climbed to $29.7 million as of September 30, 2025, up from $28.3 million a year prior. This increase, while seemingly minor in percentage terms, is concentrated and points to specific asset quality deterioration.

The core issue here is not broad economic stress, but rather company-specific underwriting problems. Honestly, the spike is largely attributable to just one multi-family real estate loan where vacancy rates increased, plus some specific reserves set aside in the commercial real estate and operating loan portfolios. This concentration of risk in a few relationships makes the portfolio defintely more vulnerable.

• Substandard loans hit $29.7 million in Q3 2025.
• The primary driver was a single multi-family real estate loan.
• Problem loan ratio is over double the Iowa peer average.

Geographic concentration risk from operating solely within Iowa

The company's entire operation is conducted within the State of Iowa, primarily serving central, north-central, and south-central counties like Story, Boone, and Marshall. This geographic concentration creates a significant, unavoidable risk. If the regional economy stumbles, the bank has nowhere else to turn for revenue growth.

This is a big deal because the local economy is heavily dependent on a few key sectors. You're essentially betting the whole bank on the health of the local agricultural sector, which is subject to commodity price volatility and weather, and the stability of large governmental employers, like Iowa State University. A single, severe drought or a major budget cut at a state institution could impact a disproportionate share of the loan and deposit base all at once.

Net loan portfolio decreased by 1.5% to $1.28 billion in Q3 2025

While the focus is often on asset quality, a shrinking loan portfolio is a weakness because it signals a lack of core growth. As of September 30, 2025, the net loan portfolio decreased to $1.28 billion, a 1.5% contraction from the $1.30 billion reported a year earlier. This decline suggests that the bank is either struggling to find new, high-quality borrowers or is being overly cautious in its lending, which hurts future interest income.

Here's the quick math on the loan book change, which shows a slight but persistent decline in the core lending engine:

Increased credit loss expense due to specific commercial loan reserves

The company is increasing its reserves for potential loan losses, which directly hits the bottom line. For the third quarter of 2025, the credit loss expense jumped to $627 thousand, a significant increase from $371 thousand in the same period of 2024. This isn't just a quarterly anomaly; for the first nine months of 2025, the expense was $1.7 million, more than double the $722 thousand recognized during the same period in 2024.

This higher expense is a direct result of management setting aside specific reserves, particularly in the commercial real estate and operating loan portfolios. When a bank has to increase its allowance for credit losses (ACL), it's a clear sign that management sees higher risk in the current loan book. This is a crucial indicator of underlying credit quality stress that you can't ignore.

Ames National Corporation (ATLO) - SWOT Analysis: Opportunities

Use the conservative 72% loan-to-deposit ratio to grow the loan book sustainably.

You have a clear, immediate opportunity to expand your core lending business by prudently increasing the loan-to-deposit ratio (LDR). As of the third quarter of 2025, Ames National Corporation holds a conservative LDR of approximately 69.6% (net loans of $1.276 billion divided by deposits of $1.833 billion). This is well below the target of 72% that would still maintain a strong liquidity buffer, especially in the current climate.

Here's the quick math on the near-term lending capacity:

• Leveraging the existing $1.833 billion in deposits to a 72% LDR target allows for a loan book of approximately $1.320 billion.
• This implies a potential for immediate, capital-efficient loan growth of about $44 million ($1.320 billion - $1.276 billion).

This expansion should focus on the higher-yielding commercial, agricultural, and residential real estate segments, which have already shown growth in 2025. That's a low-hanging fruit for net interest income (NII) expansion.

Reinvest approximately $105 million in maturing investments at higher current yields.

The interest rate cycle presents a significant, non-credit-risk opportunity to boost Net Interest Income (NII) as your legacy, lower-yielding investment securities mature. As of March 31, 2025, Ames National Corporation had approximately $105 million in investments scheduled to mature within one year. These legacy assets carry a low average yield of about 1.6%.

Reinvesting this capital at current market rates-which, even with Federal Reserve rate cuts, remain significantly higher than 1.6%-could generate substantial NII growth. Assuming a conservative reinvestment yield of 4.0% (a reasonable proxy for current short-to-medium-term bank-eligible securities), the annual interest income gain is clear:

This repricing tailwind is already visible, with interest income from investment securities increasing by $289 thousand in the third quarter of 2025 due to initial reinvestments at better rates.

Expand noninterest income via the growing wealth management segment.

The wealth management segment is a reliable engine for noninterest income (NII) growth, which is crucial for diversifying revenue away from rate-sensitive lending. Noninterest income for the nine months ended September 30, 2025, totaled $7.7 million, marking a 7.1% increase year-over-year. This growth is directly tied to an increase in wealth management income driven by new account relationships and growth in assets under management.

In the third quarter of 2025 alone, wealth management income reached $1,374 thousand, up from $1,242 thousand in the same period a year prior. The opportunity is to accelerate this growth by cross-selling wealth management services to the existing, loyal deposit base. This is a high-margin business that should be a top priority.

Execute the strategic plan to upgrade the digital experience and treasury management platforms.

The strategic commitment to upgrading the digital experience and treasury management platforms is a necessary step to remain competitive and improve the efficiency ratio. This initiative directly addresses the need to serve business customers better with modern cash management services, which are critical for attracting and retaining commercial deposits.

A successful execution of the treasury management upgrade will allow Ames National Corporation to:

• Attract larger commercial accounts by offering a more robust, modern platform.
• Increase fee income from treasury services, adding to the noninterest income stream.
• Drive continued efficiency improvements, building on the Q3 2025 efficiency ratio of 61.76%.

The long-term win here is not just better service, but a lower cost-to-serve and a stickier, more profitable business customer relationship. Defintely a key strategic lever for 2026.

Ames National Corporation (ATLO) - SWOT Analysis: Threats

Weakening collateral valuations, particularly in the commercial real estate (CRE) portfolio.

You need to watch the Commercial Real Estate (CRE) portfolio closely; it's a clear risk that is already showing up in the numbers. The core threat is that declining occupancy rates and collateral valuations are forcing the bank to set aside more capital for potential losses. The total net loan portfolio was approximately $1.28 billion as of September 30, 2025.

This weakening has directly led to an increase in credit provisioning. For the nine months ended September 30, 2025, the allowance for credit losses rose to $18.0 million, or 1.39% of total loans, up from $17.6 million, or 1.34%, a year prior. More specifically, substandard-impaired loans-those with a high probability of default-increased to $18.4 million as of June 30, 2025, a sharp rise from $12.0 million the previous year, with CRE being the primary driver. That's a 53% jump in a key risk metric. This is not a theoretical problem; it's a realized one.

Intense competition from larger regional banks in the limited Iowa market.

Ames National Corporation is a community bank holding company, and while local focus is a strength, it limits your growth potential against much larger regional players. The company is the 6th largest Iowa-based commercial bank holding company based on total deposits. Your total assets were just over $2.1 billion as of December 31, 2024.

Compare that to the largest banks operating in the state. For instance, Principal Bank, a major player in Iowa, had consolidated assets of up to $8.96 billion as of Q2 2025. This disparity means larger banks have a massive cost of funds advantage, deeper technology budgets, and can offer more competitive loan rates and sophisticated products, especially to larger commercial clients. You're fighting a scale war in a fixed geographic area, plus you also have competition from tax-exempt credit unions and emerging financial technology (FinTech) firms. That's a tough fight for market share.

Risk of net interest margin (NIM) compression if market interest rates decline further.

The good news is that your Net Interest Margin (NIM) has been expanding, hitting 2.67% for the nine months ended September 30, 2025, up from 2.16% a year ago. But here's the threat: that expansion was largely due to a decrease in market rates helping to lower your cost of funds. If rates continue to fall, your NIM (the spread between what you earn on loans and pay on deposits) will compress again, hurting profitability.

The immediate risk is on the asset side. You have approximately $315 million of loans maturing within one year at an average yield of approximately 5.8%. If new loan rates are lower when you re-price this portfolio, your interest income will fall, and your NIM will shrink. This is a clear, near-term headwind you must plan for.

Deposit flight, as customers defintely seek higher rates elsewhere.

The battle for deposits is real, and customers are absolutely rate-sensitive right now. While your total deposits grew slightly to $1.83 billion as of September 30, 2025, that growth was driven by higher-cost time deposits and public funds. This was partially offset by a decline in lower-cost retail and commercial checking and money market accounts, as customers actively moved money to higher-yielding options.

The cost of funds is a major concern. Approximately 16% of your deposits are tied to external indexes, meaning their interest expense is highly volatile and quickly adjusts to market changes. This volatility makes it harder to manage funding costs and pricing strategy, putting pressure on the NIM even if loan yields remain stable. For the nine months ended September 30, 2025, deposit interest expense decreased by $2.1 million, but any upward swing in market rates would reverse this gain quickly.

Here's the quick math on your key risk exposures: